Super Micro Computer (SMCI) has been a shining star in the artificial intelligence (AI) revolution, capitalizing on the surging demand for advanced AI processing servers. Yet, the stock's journey has been far from smooth this year. Several challenges, from financial reporting chaos to a delisting scare from the Nasdaq Index ($IUXX), sent shockwaves through its investor base.

While the chip maker secured a reprieve, Wedbush analyst Matt Bryson is still skeptical, pointing to inaction in the CEO's office as a red flag. SMCI's volatile price action has only added to the unease, suggesting that beneath the AI-fueled hype, Super Micro Computer may still have unresolved operational cracks.

Despite its recent surge, Bryson believes the company’s path forward may not be as smooth as its past successes would imply, and hence, investors should not jump in even after management was cleared of misconduct.

While Super Micro’s AI play is compelling, let's look at why caution is essential.

About Super Micro Computer Stock

Founded in 1993 and based in San Jose, California, Super Micro Computer is renowned for server and storage solutions. It serves enterprise data centers and cloud giants, cementing its role as a tech infrastructure leader. Its market capitalization currently stands at $21.2 billion.

SMCI’s journey from a Russell 2000 Index (RUT) small-cap to a Nasdaq-100 heavyweight in July was nothing short of meteoric, marked by record highs. Yet, turbulence hit hard in recent months. Since August, the stock has whipsawed amid accounting controversies and a looming Nasdaq delisting deadline.

Trading at $36.14 today, SMCI extended its slump following JPMorgan's “Underweight” rating and a $23 price target, far below Wall Street's $50 consensus. Despite demand tailwinds like Nvidia’s AI processors, the stock’s 51% six-month plunge overshadows its 32% rally over the past 52 weeks. After rebounding from November lows of $17.25 to a December peak of $48, $50 looms as a tough resistance level.

SMCI Stock Soars, But Volatility Lurks

Super Micro Computer's 2024 journey has been a bumpy ride, with its stock swinging wildly amid allegations, investigations, and eventual recovery. SMCI plummeted over 51% in six months, triggering panic among investors.

The downturn started when short-seller Hindenburg Research dropped a bombshell in late August, accusing the company of accounting manipulation and export control failures. Things worsened when Super Micro delayed its fiscal 2024 10-K filing and received a noncompliance letter from the Nasdaq. To top it off, the company’s auditor, Ernst & Young (EY), resigned in October, citing concerns raised months earlier.

Investor anxiety peaked until an independent special committee's preliminary findings in November revealed no evidence of fraud or misconduct. By December, the committee confirmed its findings, and the company secured a new auditor, BDO USA, and regained compliance.

The narrative flipped, sparking a dramatic 77% rally over the past month as short sellers scrambled. With 17.8% of its float still shorted as of Nov. 29, the squeeze could keep the momentum going. However, once the dust settles, the focus will inevitably return to Super Micro's fundamentals. The surge isn’t done yet, but investors should exercise caution. 

From a valuation standpoint, Super Micro trades currently at a trailing price-earnings (P/E) ratio of 19.22x, which is a discount to the tech sector median and historical average.

Super Micro Dips on Q4 Earnings Miss

After Super Micro's fiscal fourth-quarter earnings on Aug. 6, the stock took a nosedive, plummeting more than 20% the next day. Although its revenue rose 143.6% year-over-year to $5.31 billion, slightly beating analysts’ expectations of $5.30 billion, its EPS of $5.51 missed estimates.

To make matters worse, gross margins dropped to 11.2%, down from 17% a year ago, raising eyebrows despite CEO Charles Liang’s claim of record demand for AI infrastructure. With $1.7 billion in cash against $2.2 billion in debt, the company’s financials also showed vulnerability.

Adding to the woes, management warned of ongoing shipment delays due to supply chain issues and delayed shipments of Nvidia's (NVDA) Blackwell systems, which are crucial for Super Micro’s high-margin DLC solutions. This combination of problems could keep the pressure on margins in the near term.

Looking ahead, Super Micro expects a comeback in Q1 of fiscal 2025, forecasting net sales between $6 billion and $7 billion, with adjusted EPS between $6.69 and $8.27. For fiscal 2025, management projects annual sales between $26 billion and $30 billion.

However, as the stock’s recent volatility shows, investors need to stay sharp as the company navigates through these mixed signals.

What Do Analysts Expect for Super Micro Stock?

Top investment firms continue to reassess Super Micro's trajectory. JPMorgan’s downgrade set the tone, with Goldman Sachs slashing its target price to $28 from $67.50, citing risks tied to delayed filings and an auditor's resignation. Preliminary Q1 results and a muted Q2 outlook missed revenue expectations, hinting at potential headwinds. Without revenue guidance reiteration, Goldman contends SMCI may be navigating notable business challenges.

Meanwhile, on Dec. 3, Wedbush analyst Matt Bryson maintained a “Neutral” rating on SMCI, with a $24 target price, reflecting a cautious outlook despite recent developments. While Nasdaq's date extension for filing financial results removes immediate delisting risks and management was cleared of misconduct, Bryson remains wary.

The analyst highlights that replacing the CFO does not address deeper concerns, as major decisions are often driven by the CEO. He believes that this leaves Super Micro vulnerable to potential financial missteps, real or perceived.

SMCI's volatile history, including halving its value since March peaks and lingering concerns over governance, weighs heavily on investor sentiments. With the tech stock entrenched in a broader downtrend, Bryson sees limited upside despite the stock doubling from November lows, citing structural uncertainties and technical resistance.

Overall, SMCI has a consensus rating of “Hold,” slipping from the “Moderate Buy” rating overall. Out of 11 analysts, one rates the AI stock as a “Strong Buy,” one advises a “Moderate Buy,” seven analysts are playing it safe with a “Hold,” and two recommend a “Strong Sell.”

SMCI’s mean price target of $50.06 suggests 37% upside, but risks loom large. Accounting delays and a reported Department of Justice probe heighten uncertainty. While recent gains signal market optimism, compliance remains key to rebuilding trust. Investors should weigh potential rewards against SMCI’s volatility before diving in, as the stock walks a tightrope between opportunity and ongoing scrutiny.  

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.